FIRM LIFE CYCLE AND ECONOMIC DEVELOPMENT: THE WORKING CAPITAL–PROFITABILITY RELATIONSHIP ACROSS ADVANCED AND DEVELOPING ECONOMIES

Abstract

This study examines whether the association between working-capital intensity and profitability varies with firm life-cycle stage and the economic-development context of the firm's home country. Using 379,191 firm-year observations for 31,112 listed non-financial and non-utility firms in 134 countries over 2000–2025, we measure working-capital intensity with the cash conversion cycle (CCC) and estimate quadratic CCC–ROA specifications. The empirical design combines pooled models with firm fixed effects and several sensitivity specifications, including lagged regressors, an industry-year instrumental-variable approach, alternative performance measures, and dynamic models. The pooled quadratic specification yields a statistically significant concave CCC–ROA association and an estimated turning point of approximately 133 days. However, this estimate changes materially across estimators, so it is treated as a model-dependent conditional association rather than a structural or universal optimum. Life-cycle subsamples also display different fitted profiles, with the growth estimate exceeding the mature estimate, while the joint development-by-life-cycle results show nonparallel patterns across advanced and emerging/developing economies. Overall, the evidence is most consistent with a contingent and specification-sensitive relationship between working-capital intensity and profitability. The results do not establish a causal or universally transferable CCC target.